Paying a high price for power

When the European Union’s leaders met at a special summit devoted to energy in May, the European Commission delivered some startling statistics about energy prices.

European Voice

7/10/13, 9:20 PM CET

Updated 4/13/14, 1:36 AM CET

Electricity prices in Europe have risen by 40% since 2005. General energy prices for companies and factories have gone up by 27%. Coming at the same time as an economic downturn, this has had a brutal impact on both household and industrial consumers of energy. Although the economic crisis is global, this crisis of energy prices is not. During this same period, energy prices have fallen in the United States.

“Compared to their American counterparts, for European industrial firms electricity is almost twice as expensive, and gas four times as expensive,” Herman Van Rompuy, president of the European Council, observed last month.

Many in Europe have been quick to point to shale gas extraction in Europe as the answer (see page 20). But at the European Council, the Commission stressed that completion of the EU’s internal energy market could have as great an effect.

The EU’s three packages of energy law have been transposed into national law only partially in some countries and with many variations, so that huge differences in prices persist. Data shared with member states by the Commission shows that those countries with more competition in the energy sector have lower prices.

Part of the reason for the wide variance in electricity prices in the EU is that many countries have chosen to maintain regulated energy tariffs despite a push for liberalisation, partly to shield households from fluctuating energy prices. The majority of member states still intervene in some way in the formation of retail prices. This, says the Commission, has prevented suppliers from offering new, more attractive services and tailor-made dynamic pricing schemes.

The Commission is pursuing numerous infringement cases against member states for their slow implementation of the energy packages. For instance, last month Poland was taken to court over its state-set gas tariffs for industrial users. The European Court of Justice recently ruled that price regulation can be compatible with EU law only under strictly defined circumstances.

The fact that Europe’s gas prices remain largely tied to oil prices has also been a problem. Contracts have historically been based on long-term deals linked to oil prices, which are currently higher than openly traded gas.

Despite moves by utilities to move to contracts based on openly traded gas hubs, an investigation by Reuters earlier this year found that, at most, only 38% of European gas supplies are using openly traded prices. Analysts say this is inhibiting the EU’s goal of moving towards using gas, which is better for climate and energy security reasons.